At the end of November, the Consumer Financial Protection Bureau’s (CFPB’s) highly anticipated Debt Collection Rule (the “Rule”) took effect. The Fair Debt Collection Practices Act (the “FDCPA”) places numerous restrictions on what collectors can—and cannot—do when collecting debts. It also provides consumers with certain rights and remedies against those who violate any of the law's provisions. The Rule interprets the federal FDCPA, clarifies how debt collects can use new communication technologies, and expands the information debt collectors must provide at the outset of the debt collection efforts. There have been many questions regarding the Rule’s applicability to financial institutions, so this article is intended to address some of the most common concerns regarding the Rule’s potential impact to you and your institution.
There has been some confusion about the Rule’s applicability to banks so, to start, the Rule is applicable to “debt collectors.” Broadly speaking, the term means any person who uses any instrumentality of interstate commerce or the mail in the collection or debts. Specifically excluded from the term is any officer or employee of a creditor collecting debts for the creditor in the creditor’s name. Put another way, if a bank is collecting its own debt in its own name the bank is not considered a “debt collector” under the FDCPA and the Rule. If there is ever a time a bank is attempting to collect its debt under a different name, then that bank would be a “debt collector” and the Rule would be applicable.
For many of you this means the Rule will not apply to you or your collection practices, but there is still reason to understand the Rule’s requirements and even apply them to your debt collection practices. First, banks should monitor their debt collectors for compliance and ensure their practices are appropriate for risk management purposes. While the actions of a third-party debt collector will not automatically result in a bank FDCPA violation it could lead to potential UDAAP concerns. Second, many state laws track with the FDCPA but have a wider scope. It will be important to watch for legislation at the state level which could extend these rules to community banks collecting their own debts under state law. Lastly, for UDAAP and general best practice reasons, applying the Rule to all debt collection practices, even if not subject to the Act, may at least serve as a safe harbor in claims by debtors.
In summary, while first-party creditors have avoided direct implications from the Rule thus far, there remain indirect implications. Creditors should revisit third-party vendor management requirements and update them, as appropriate, to reflect changes and ensure the compliance of third-party debt collectors and keep an eye on future legislation that could impact creditor debt collection practices at the state level. As always, feel free to reach us on the Hotline with any additional questions. If looking for more specific information on what the Rule entails you may be interested in our summary of the Rule here: https://compliancealliance.com/find-a-tool/tool/final-rule-on-debt-collection-practices-regulation-f